Most currency price quotes have the US dollar (USD) as its base
currency (direct quote). Therefore it is easy to calculate the cost as
it is always 1 US dollar equals whatever price the quote currency is
showing. However, there are exceptions to this rule. There are four
currency pairs that involves the US dollar but where the US dollar is
not the base currency but the quote currency (indirect quote).
Australian dollar (AUD), the British sterling Pound (GBP), the Euro
dollar (EUR), and the New Zealand dollar (NZD) are the 4 currency pairs
where the US dollar is not the base currency but the quote currency.
example, a price quote on the GBP/USD of 1.8800 would mean that one
British Pound is equal to 1.8800 US dollars. Likewise, if the price the
GBP/USD currency pair increases it would mean that the British Pound
(GBP) has appreciated against the US dollar or that the US dollar has
weakened against the British Pound (GBP).
Conversely, if the
price the GBP/USD currency pair goes down it would mean that the
British Pound (GBP) has weakened against the US dollar or that the US
dollar has strengthened against the British Pound (GBP).
there are 3 kinds of quotes. Firstly, a direct quote where the US
dollar (USD) is reflected as the base currency. Second, an indirect
quote where the US dollar (USD) is reflected as a quote currency rather
than a base currency (as above example). Third as a cross quote where
the US dollar (USD) is not quoted in the currency pair, e.g. GBP/EUR.
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